New York Court of Appeals Expands Scope of Insurance Law, Placing Onerous Burden on Out-of-State Insurers

On November 20, 2017, the New York State Court of Appeals issued Carlson v. American International Group, Inc., 2017 N.Y. Slip Op. 08163 (N.Y. Nov. 20, 2017), greatly expanding the scope N.Y. Insurance Law § 3420. The Court of Appeals, the highest court in New York State, held that section 3420 applies to out-of-state insurers issuing policies anywhere in the country for risks in New York if the insured has a substantial business presence in New York.

On July 7, 2004, a delivery van owned by MVP Delivery and Logistics, Inc. (“MVP”), collided head-on with another vehicle, killing the other vehicle’s driver. MVP and DHL Worldwide Express, Inc. (“DHL”) were parties to a cartage agreement, whereby MVP used its fleet of trucks to perform DHL’s package delivery services in upstate New York. The deceased’s husband, Michael Carlson, individually and on behalf of his deceased wife’s estate, brought a lawsuit pursuant to Insurance Law § 3420(b) to collect on certain insurance policies issued to DHL by National Union Fire Insurance Co. (“National Union”), and American Alternative Insurance Co. (“AAIC”). Section 3420(b) provides that “an action may be maintained . . . against the insurer upon any policy or contract of liability insurance . . . to recover the amount of a judgment against the insured or his personal representative.”

Section 3420(a) mandates specified provisions, including timely disclaimers in personal injury actions, be included in certain insurance policies and contracts “issued or delivered in this state.” Section 3420(b) then provides a direct cause of action against the insurer “upon any policy or contract of liability insurance that is governed by such paragraph.” In order to recover, a plaintiff must first establish that the policy sued upon was “issued or delivered” in New York. This is a threshold requirement, if a party cannot satisfy it the court will dismiss for lack of capacity to sue. In Carlson, the insurance policy was issued by AAIC from New Jersey, and delivered to the insured in Washington and then in Florida. AAIC moved to dismiss the action because its policy was not “issued or delivered” in New York. The Court of Appeals held that “issued or delivered” applies not only to policies issued to a New York company, but to any policy, wherever issued, if the insured has a substantial business presence and creates risks in New York.

This is a game-changer for out-of-state insurers. If an out-of-state insurer issues a policy to a company that has a presence in New York, New York’s strict requirements will apply to that policy and insurer. Judge Garcia (joined by Chief Judge DiFiore and Judge Stein), in his dissent, aptly notes, “the majority misinterprets section 3420(a) in a manner that enacts sweeping change across the Insurance Law, generating substantial implications, both known and unknown.”

Every insurer will now need to determine whether their insured has a substantial presence in New York, and creates risk in New York. Under this interpretation of the Insurance Law, an automobile insurer located anywhere in the country may be required to comply with New York insurance statutes on the chance that the insured vehicle may be driven into New York. This may be an extreme example, but as Judge Garcia points out in his dissent, what if the driver owns property in New York, or works in New York, or vacations regularly in New York? These may be evidence of a substantial business presence.

It will be some time before the full effect of this decision is realized, but it certainly places additional burdens on the out-of-state insurer with insureds who may have a presence in New York.

To read the full opinion of the New York State Court of Appeals, please click here.

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